Holiday shopping returns set to drive another surge in industrial RE demand

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Online returns will drive a surge in demand for more industrial
space across the US, according to a new report from CBRE.

According to the real estate services giant, e-commerce
returns this season could total as much as $70.5 billion, a 73 percent increase
from the previous five-year average. This increase can be attributed to a
historic rise in e-commerce sales triggered by the COVID-19 pandemic.

CBRE’s forecast, based on National Retail Federation data,
estimates online purchases this holiday season (November and December) will
reach $234.9 billion, a year-over-year gain of 40 percent. With an average
return rate of 30 percent for online purchases, it’s easy to see why the
overall number of returns will jump significantly.

“Online returns continue to be a challenge and this year reverse logistics operations could be stressed like never before,” said John Morris, Industrial & Logistics and Retail Leader for CBRE.

JOHN MORRIS

“With fewer in-store sales this holiday season, retailers will have to shift much of their focus to returns processing and their distribution networks in order to recoup as much value as possible.”

Optoro, a provider of returns technology and services for
processing retail returns and CBRE’s partner for the report, estimates a
reverse logistics supply chain requires, on average, up to 20 percent more
space and labor capacity compared with forward logistics (the original order
fulfillment process)—a conundrum given that industrial space is already
incredibly tight:

•             As of the
third quarter, there were 22 U.S. markets with vacancy rates below the national
average of 4.7 percent, according to CBRE.

•             CBRE
Economic Advisors estimates 1.5 billion sq. ft. of industrial space will be
added in the U.S. in the next five years to meet growing demand.

•             Many
companies that currently occupy second-generation space are expected to upgrade
to these newly constructed buildings, which will allow reverse logistics
occupiers to lease a greater portion of Class B space. As much as 400 million
sq. ft. of this space could be used to process returns in this five-year
period.

Not all returns can be successfully discounted and put back
in rotation. Optoro estimates that returns produce 5 billion pounds of waste in
landfills annually.

“Retailers will have to meet this growing challenge in many
ways,” Mr. Morris said. “More space will be required for distribution networks.
However, cutting down on the overall return rate should be a paramount goal
going forward. Technologies such as virtual sizing and augmented reality can
help provide more accurate product assessments, allowing consumers to make more
informed decisions and reduce returns. Innovations like this will help
retailers limit their losses and cut product waste – a win-win for everyone.”

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